| Biocon Limited | ||||||
| Ratings Reaffirmed ; STD Withdrawn | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities 1The common independent director on the boards of CRISIL and Biocon Ltd did not participate in the rating committee meeting and the rating process for these instruments |
| Detailed Rationale |
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CRISIL has reaffirmed its ratings on the bank facilities of Biocon Limited (Biocon) at 'CRISIL AA+/Stable/CRISIL A1+'. The short term debt has been withdrawn in line with CRISIL's withdrawal policy. |
| Analytical Approach |
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For arriving at its ratings, CRISIL has combined the business and financial risk profiles of Biocon and its nine subsidiaries (including Syngene) and six step-down subsidiaries as all these companies, together referred to herein as Biocon, primarily operate in the biopharma sector, and are under a common management. |
| Key Rating Drivers & Detailed Description |
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Strengths * Established position in the biopharma segment Biocon is the leading biopharma company of India with a track record of 40 years. In the biopharma segment, Biocon primarily has a presence in India and semi-regulated economies. In the domestic formulations market, it is a biologics-focused specialty products company, mainly in chronic therapy areas. The domestic business has multiple divisions such as metabolics, oncology, nephrology, immunotherapy, and comprehensive care. It has strong brands such as InsugenÃ'® (rh-insulin), BASALOG'¢ (insulin glargine), BIOMab-EFGRÃ'® (nimotuzumab), BLISTOÃ'® (glimepiride + metformin), CANMAb'¢ (trastuzumab), KRABEVAÃ'® (bevacizumab), EvertorÃ'® (everolimus), TACROGRAF'¢ (tacrolimus), and ALZUMAb'¢ (itolizumab) across its biosimilar and novel biologic portfolio. Biocon is also one of the leading players in insulin in Asia, with its global capacities making it one of the leading insulins producer globally. Biocon also is a leading supplier of complex, small molecules APIs across cardiovascular, anti-obesity and immune-suppressants therapeutic areas. * Strong and diversified revenue streams Revenue is diversified across biopharma (small molecules, biologics, and branded formulations) and contract research, which accounted for 67% and 33% of revenue, respectively, in fiscal 2019. Small molecules (32% of revenues in fiscal 2019), the flagship segment, grew 18% in fiscal 2019 led by healthy demand, new product registrations and improved pricing in the regulated markets. In small molecules, Biocon has consolidated its position by leveraging on its inherent strengths in fermentation technology and complex chemistry. Similarly, the company is an established domestic player through its branded formulations segment (12% of revenues in fiscal 2019). Biocon's long term growth potential is expected to be led by its biosimilar and novel biologics segment, in both semi-regulated and regulated markets. While these emerging segments continue to require high investments in the form of R&D and capex, it is supported with steady cash flows from its established segments of small molecules and branded formulations. The company achieved critical milestones in biologics segments with approvals and launches. In partnership with Mylan, Biocon's three biosimilar assets were commercialised in US and Europe. FulphilaÃ'® (biosimilar pegfilgrastin) was launched in the US and SemgleeÃ'® (biosimilar insulin glargine) and OgivriÃ'® (biosimilar trastuzumab) along with the in-licenced biosimilar Adalimumab were launched in Europe. The company will continue to launch the products in other key geographies. Additionally, Syngene provides further revenue diversity with its healthy growth and profitability. For fiscal 2019, Syngene accounted for one-third of revenue and operating profits of consolidated Biocon. Syngene's public listing in fiscal 2016 boosted Biocon's cash flow and provided flexibility for R&D and investments in capex for biosimilar and biologics. * Strong pipeline of biosimilar products Biocon has strong R&D capabilities, and has several biosimilars and novel biologic products under development across diabetes, oncology, and autoimmune therapeutic segments. In partnership with Mylan, Biocon's three biosimilar assets received approvals from various regulators and were launched in regulated and semi-regulated markets. The scaling up of revenue from the key biosimilar assets (trastuzumab, pegfilgrastin and insulin glargine) in the US and Europe will be a key rating sensitivity factor. * Strong financial risk profile The gearing was conservative at 0.42 time as on March 31, 2019, and the interest coverage and net cash accrual to total debt ratios of 22 times and 0.7 time, respectively, in fiscal 2019. Financial flexibility is high because of unencumbered cash and marketable securities of Rs 1,886 crore as on March 31, 2019 (including Rs 1,153 crore in Syngene). Both Biocon and Syngene have large capex plans of $300 million and $200 million respectively over the medium term. Under Biocon, the company has capex plans for further increasing capacities for monoclonal antibodies and active pharmaceutical ingredients (APIs) for immunosuppressants. Given the consolidated net cash accrual of over Rs 1,200 crore per fiscal, healthy liquidity, and part funding of the large capex by Mylan, the strong financial risk profile is likely to be maintained over the medium term. Weaknesses * Uncertainty in payoffs from a high R&D driven model in biosimilars and novel biologic segment, especially for regulated markets The company will continue to spend extensively on R&D for developing new molecules and biosimilars, particularly for the US and Europe markets. It remains exposed to long gestation period, uncertainty of timing and the extent of returns on investments on new molecules given the inherent nature of the drug discovery model. Gross R&D and net R&D (net of capitalisation) was 13% and 8% of operating revenue excluding Syngene, respectively for fiscal 2019 (14% and 8%, respectively for the previous fiscal). The R&D expenditure will remain high over the medium term, driven by expenses on clinical trials and other R&D activities. The uncertainty in revenue visibility and predictability over the return on the R&D exposes the company to investment risk. However, the company has achieved critical milestones in fiscals 2018 and 2019 such as approvals for biosimilars and launch in regulated and semi-regulated market. In partnership with Mylan, biosimilars were launched in these markets leading to strong revenue growth in fiscal 2019. The extent of ramp up, particularly in the regulated markets, will be a monitorable * Exposure to regulatory uncertainties and intense competition The regulatory risks are manifested by increasing scrutiny and inspections by the regulatory authorities including the US FDA, European Medical Agency and others in Asian and Latin American markets. The company is addressing the observations raised by the US FDA on pre-approval inspection of insulin drug substance facility. The company is also exposed to intense competition in the regulated markets, which is marked by aggressive defence tactics by innovator companies through introduction of authorised generics, and the presence of a number of cost-competitive Indian players. Consequently, Biocon's small molecule segment has witnessed pricing pressures in the past ' the segment degrew by 8% in fiscal 2018. In branded formulation segment, additions to lists under Drug Price Control Order also impacts product pricing and hence the profitability of the India branded formulations business. |
| Liquidity |
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Liquidity is adequate marked by adequate cash accruals and healthy liquid surplus as against maturing term debt repayments. CRISIL estimates cash accruals to be Rs 1,100 crore to Rs 1,300 crore annually as against maturing term debt repayments of about Rs 650 crore (including Syngene) for fiscal 2020. Financial flexibility is high because of unencumbered cash and marketable securities of Rs 1,886 crore as on March 31, 2019 (including Rs 1,153 crore in Syngene). Both Biocon and Syngene have large capex plans of Rs 2,100 crore ($300 million) and Rs 1,380 crore ($200 million), respectively over the medium term which is expected to be prudently funded in a mix of cash accruals and debt. |
| Outlook: Stable |
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CRISIL believes Biocon will maintain its strong financial risk profile, over the medium term supported by large cash accrual and robust liquidity. |
| About the Company |
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Biocon, founded in 1978, is India's leading biopharma company. It is fully integrated and delivers biopharma solutions, ranging from discovery to development and commercialisation. It has diversified revenue streams including small molecule APIs and formulations, biologics (novel and follow-on), and branded formulations, with a presence in the domestic as well as global markets. It also offers integrated research services through Syngene. As on June 20, 2019, the promoters held 60.67% stake in Biocon, foreign portfolio investors held 16.52%, and the balance was held by the public and others. |
| Key Financial Indicators | ||||||||||||||||||||||||
*Operating revenues net of excise | ||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||
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| Annexure - List of entities consolidated | ||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
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